Wednesday, August 21, 2013

LVR home sick

The Reserve bank is finally going to do something about the super-heated housing market. Unfortunately their preferred method they have chosen will make life even more difficult for the average income first home buyer. Why they think that penalising new entrants (low deposit buyers) - rather than hitting the property speculators - is going to do anything to contain house prices is not at all obvious. The rich white men making these decisions aren't affected by it so I guess that's why it occured to them...

NZ Herald:
--The curbs on low-deposit home lending announced by the Reserve Bank yesterday are likely to prove more restrictive than it thinks, the Bankers Association warns.

Governor Graeme Wheeler said under the new regime, to come into effect on October 1, only 10 per cent of the value of banks' new lending could be on loan-to-value ratios (LVRs) of more than 80 per cent.
[...]
But the Bankers Association's regulatory director, Karen Scott-Howman, said the Reserve Bank was making compliance with the LVR restrictions a condition of registration as a bank.

In other words: only those on above average incomes can now afford to get a mortgage. And this will, somehow, contain the over-inflated property market.
--RBNZ information: 'Limits for high-LVR mortgage lending
':
--
“The LVR restrictions are designed to help slow the rate of housing-related credit growth and house price inflation, thereby reducing the risk of a substantial downward correction in house prices that would damage the financial sector and the broader economy.

“The conventional mechanism to help restrain housing demand, while working on the supply response, would be to raise the Official Cash Rate (OCR), which would feed through directly into higher mortgage rates.
[...]
“In the current situation, where escalating house prices are presenting a threat to financial stability but not yet to general inflation, macro-prudential policy offers the most appropriate response,” Mr Wheeler said.

“The Reserve Bank considers that LVR speed limits will be more effective than other macro-prudential tools in constraining private sector credit growth in the housing sector, and dampening housing demand.
--

The Governor's statement - like the housing boom itself - is purely speculative. The one thing it will definitely do is lock poorer people out. And they will have to continue to rent... off the wealthy who can get past the LVR rules. Sigh.